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Opinions of Monday, 24 August 2015

Columnist: Richard Ahiagbah

No more trial and error, we need policy direction

In a recent article for Neoghana.com, I argued that Dr. Wampah, Governor of the Bank of Ghana’s (BoG) stated policy to appreciate the cedi is both wrong and unsustainable.

True to form, the cedi has depreciated almost 74 % in less than a month following the policy. Given the evidence, it is clear that Dr. Wampah’s measure is not only wasteful but underscores that the economy lacks direction.

A strong national currency is a viable economic policy except that, it is the wrong policy choice for Ghana. In fact, a strong currency is the kind of policy, the British Chancellor of the Exchequer pursues to maintain Britain’s import advantage. To this end, Britain stands to gain even if the Chancellor spends $20 million a minute to ensure the pound sterling remains the world’s strongest currency.

Such a policy is justifiable to the British people. Ghana on the other hand, has nothing to gain from strengthening the cedi unless Dr. Wampah’s goal is to make Ghana permanently import dependent. I doubt it because Ghana does not have the corresponding export volume to support total dependence on imports.

In contrast to Britain is China whose goal to be export competitive has earned her the accolade—currency manipulator. Far from endorsing the behavior, weakening her currency shows the Chinese are building a competitive export economy.

As early as August 2015 China devalued the RMB by as much as 4.4% in response to declining trade volume. A weak RMB is among other things an export subsidy that, ensures cheap Chinese export.

Several lessons can be drawn from the discussion so far to Ghana’s advantage. At least three lessons are immediately relevant. First, the cedi will organically appreciate through export growth policy. In others words, Dr. Wampah or the BoG would not need to spend $20 million of high-interest IMF and World Bank loan to appreciate the cedi since the cedi would become stronger through export.

Secondly, a weak cedi is an export subsidy Ghana needs to accelerate economic growth. Therefore, a weak cedi makes export the natural development policy option for Ghana. Unlike China, Ghana can start benefiting from increased export right away without the burden of devaluing the cedi.

The truth is, this export subsidy advantage has always existed, but successive governments have either ignored it or unwilling to put in the required hard work.

Thirdly, every successful economy needs a sense of direction. In the case of Britain, the policy is to be import competitive and, for China, to be export competitive. I recall learning in Agricultural science class that, agriculture is the backbone of Ghana’s economy.

To our credit, this information counts for policy direction except, agriculture has not received the policy investment and the attention necessary to develop the capacity for agricultural export. Nearly 99% of Ghana’s agricultural production is labor intensive. So, there is no direction there.

The closest Ghana came in recent times to deciding a policy direction is President Kufuor's Special Initiative (PSI) aimed at developing starch production from cassava. The initiative appeared to have received serious policy appraisal because Ghana does have a relative advantage for large-scale cassava production. But the initiative failed I suspect due to lack of policy commitment beyond the ambition of the Kufour administration.

I am sure, other regimes have given similar efforts, but what we do need ultimately is a national economic growth policy. A near perfect opportunity exists with the National Development Planning Commission to engender debate on the policy direction of Ghana.

At any rate, we cannot continue in the present trajectory if the goal is to develop. One thing is clear, the will to develop exists, now let’s commit to finding the way.